Ker-Splunk! Cisco closes $28 billion analytics acquisition Cisco has closed its $28 billion acquisition of Splunk. A Monday regulatory filing [PDF] made it official, meaning Cisco's recent hint that the deal could conclude late in the first quarter of 2024 proved correct. competition Competition is decreasing in enterprise IT – and you'll be poorer and dumber for it READ MORE Cisco …
enabling new ways for customers to detect, investigate, and respond to threats that can only be identified via lateral movement in the network."
Ermm. Ok. I'm guessing 'lateral movement' isn't referring to the San Andreas fault letting rip, and dumping Cisco into the Bay. Or maybe Cisco's CEO will hope that happens when they've sobered up and realised they've paid $28bn for a load of marketing guff.
"Splunk's revenues around $3.5bn, so close to 10x revenues seems like a fair enterprise valuation, right?"
So long as those revenues are pukka. Splunk financials look to me as though the company has been been fattened up for sale in the past couple of years in the style of a foie gras goose. The business made a hefty net loss every single year from 2015-2022, despite being a billion dollar plus revenue business for most of that time. Between 2022 and 2023, the business magically swings from a net loss of $277m to a net profit of $263m.
And along come Cisco, cash burning a whole in their corporate pocket. Looksy here, whaddawy got ourselves? It's a ripe tech acquisition, only $28bn and it's already making a net profit over quarter of a beeelion bucks, that's a keeper for sure! We can tell investors it's an AI investment case and they'll suck it up, once it's been diced, sliced and disintegrated nobody will know or care if we get a return on that amount of money!
Of course, even at 10x revenues, that's a poor metric - what a company sells means nothing, what counts is what they get back, the return on Cisco's investment. If we say 8% is a reasonable return then they're looking for $2.24bn. Accounted profit based on paper numbers like Splunk's pre-acquisition balance sheet doesn't mean much, so let's say that for Cisco, Splunk's EBITDA is the relevant return figure. Even fattened up in 2023 EBITDA was only $0.45bn. How do Cisco get from a pumped up $0.45bn to $2.24bn (and noting that Splunk's average EBITDA of the last five years was negative $315m)?
Of course, maybe I'm being unfair and there is a marvellous cross-sell opportunity for Cisco, and fabulous synergies to be had by offshoring all Splunk support and development, firing the SG&A staff and adding their work to Cisco's existing people. But that's been the claim for almost every corporate acquisition since forever, and mostly they turn out to be value destroying because it turns out that the predictive and managerial skills of the C-suite are no better than those of the janitor. On momentary reflection, the C-suite likely have far worse predictive and managerial skills - the janitor's used to budgeting their income, the only echo chamber they're subject to is the tiled walls of the toilets, and they haven't been propelled up their own backside by an excess of hubris).
Financials for those who have any interest: https://stockanalysis.com/stocks/splk/financials/
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